TaxTMI 
TaxTMI 
2020 (3) TMI 328
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.... brevity. 3. Now, we shall take the assessee's appeal in I. T. A. No. 1228/Kolkata/ 2018 for the assessment year 2011-12, wherein the grounds of appeal raised by the assessee are as follows : 1. That, on the facts and in the circumstances of the case, the learned Commissioner of Income-tax (Appeals) erred in upholding the disallowance of genuine expenditure of Rs. 5.42 crores by way of payment to sub-contractor M/s. Sintex Infra Projects (P.) Ltd. (Sintex) through banking channel subject to TDS as bogus expenses on the alleged ground that the appellant was unable to establish by any material or evidence that the said sub-contractor had rendered services in lieu of payments received by it. 2. That the learned Commissioner of Income-tax (Appeals) further erred in alleging absence of evidence in support of carrying out sub-contract works by Sintex in spite of the fact that bills, ledger account in the assessee's books, audited accounts showing turnover of Rs. 284 crores and profits of Rs. 19.23 crores of Sintex and bank statement showing payments were filed and nothing adverse was pointed out and hence the disallowance of Rs. 5.42 crores sustained by him o....
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.... of bogus expenses amounting to Rs. 5,42,00,000. The information contains that during the assessment proceeding in the case of M/s. Sintex Infra Projects (P.) Ltd. for the assessment year 2011-12, which is assessed with the Deputy Commissioner of Income-tax, Circle-8, Ahmedabad, information was received from the Deputy Commissioner of Income-tax, Central Circle-XXI, Kolkata that the director of M/s. Silicon Real Estate (P.) Ltd. (PAN : AALCS3385C) which was assessed with him for the assessment year 2011-12 has admitted that this company has not executed any work in reality and only provided accommodation entry for turnover and/or expenses. M/s. Sintex Infra Projects (P.) Ltd. (PAN : AANCS6027R) assessed with the Deputy Commissioner of Income-tax, Circle-8, Ahmedabad was also in the list, has sub-contracted work of worth Rs. 23,92,37,351 to M/s. Silicon Real Estate (P.) Ltd. After receipt of the information, the Deputy Commissioner of Income-tax, Circle-8, Ahmedabad issued a summons under section 131 of the Act to M/s. Sintex Infra Projects (P.) Ltd. and Sri S. N. Maheshwari, CFO of M/s. Sintex Infra Projects (P.) Ltd. and CFO appeared on behalf of the company whose statement was re....
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....essing Officer. The learned Commissioner of Income-tax (Appeals) disallowed the expense only on the basis of statement of Sri Pranay Kumar Sinha, director of M/s. Silicon Real Estate Pvt Ltd. and statement of Sri Narayan Maheshwari, CFO of M/s. Sintex Infra Projects Ltd. Aggrieved by the order of the learned Commissioner of Income-tax (Appeals), the assessee is in appeal before us. 7. Shri S. K. Tulsiyan, the learned counsel for the assessee, begins by pointing out that labour job was given to M/s. Sintex Infra Projects Ltd. in relation to projects and the said party had duly raised bills on the assessee in respect of the said work. All payments were made by account payee cheques. Payments were made after deducting TDS. All projects in respect of which work was given to M/s. Sintex Infra Projects Ltd. are Government projects and are duly monitored by the various Government authorities, therefore genuineness of the transactions cannot be doubted. The learned counsel further submitted that the assessee-company was not given an opportunity to cross-examine the statements of Shri P. K. Singha and Shri Narayan Maheswari, therefore, the Assessing Officer has violated the principles of....
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....oices issued by M/s. Sintex Infra Projects Ltd. are enclosed at pages 284-293 of the paper book). As per the invoices, the activities undertaken by M/s. Sintex Infra Projects Ltd. are as under : Sl. No. Invoice Description of labour services provided Quantity 1. Bill No. 22 Hard rock chiselling using rock hammer and chisels and stacking on road side for pipe line trenches 7977.737 Sq Mtr. 2. Bill No. 20 Hard rock chiselling using rock hammer and chisels and stacking on road side for pipe line trenches 12059.37 sq. mtr. 3. Bill No. 47 Shifting of hard rock from pipeline alignment using tippers loading, unloading up to 10 kms lead including all machineries and labour 9718.18 sq mtr. 4. Bill No. 43 Shifting of hard rock from pipeline alignment using tippers loading, unloading up to 10 kms lead including all machineries and labour 24295,43 sq mtr. 5. Bill No. 42 Carting excess earth and soft rock removed from trenches and stocked on service road side to leaf of 10 kms away including all machineries and labour. 13033.65 sq mtr. Shifting of hard rock from pipeline alignment using tippers loadin....
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....some information from the Joint Commissioner of Income-tax, Range-8, Ahmedabad and without making proper verification and further enquiries, alleged that the expenditure of Rs. 5.42 crores is bogus. At this juncture it would be pertinent to bring out the law relating to assessment proceedings which is laid down in section 142 of the Income-tax Act and the same is being reproduced below (to the extent relevant for our discussion) : "142. Enquiry before assessment.-(1) For the purpose of making an assessment under this Act, the Assessing Officer may serve on any person who has made a return under section 139 or in whose case the time allowed under sub-section (1) of section for furnishing the return has expired, a notice requiring him, on a date to be therein specified,- (i) where such person has not made a return within the time allowed under sub-section (1) of section 139, to furnish a return of his income or the income of any other person in respect of which he is assessable under this Act, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed, or (ii) to produce or cause to be produced....
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....said evidences as filed by the assessee before him in response to the showcause notice. Thereafter, the learned Assessing Officer provided the copy of the statement of Sri Narayan Maheshwari, CFO of Sintex Infra Projects Ltd. recorded on March 28, 2014 and Sri Parnay Kumar Sinha, director of Silicon Real Estate Pvt Ltd. recorded on March 12, 2014. However, the learned Assessing Officer neither provided opportunity to cross-examine the said parties nor he himself called them for examination. If the Assess ing Officer doubted the veracity of the said evidence/documents produced, he should have, having called for the said information/documents, conducted inquiries relating to the said documents by calling the informa tion from Sintex Infra Projects Ltd. and Silicon Real Estate Pvt Ltd. and also examining them. Then after all such inquiries if the Assessing Officer found that the veracity of the evidence/documents were submitted by the asses see were not genuine, then the Assessing Officer, as per the requirement of section 142(3) of the Act should have provided the inquiry documents (in the form of possible evidence and statements recorded of concerned persons) to the assessee for ....
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....ra Projects Ltd. in relation to both the projects. Invoices raised by Sintex Infra Projects Ltd. were duly accepted by the learned Assessing Officer. It was also accepted by the learned Assessing Officer that the payments were made through bank and TDS was also deducted. The aforesaid facts were not available in the information received from the Joint Commissioner of Income-tax, Ahmedabad, nor were it obtained from Sintex Infra Projects Ltd. or Silicon Real Estate Pvt. Ltd. The assessee himself during the period of assessment proceedings provided the details of the aforesaid facts. Thus, the project being the Government project, the expenditures were incurred in relation to these projects. It would be absurd to say or assume that the authorities who have given the projects had sanctioned or approved the assessee's work and had made payments to it without the assessee having done the job as entrusted to it, a part of which was given to Sintex Infra Projects Ltd. The Government authorities were obviously satisfied with the work done by the assessee and only after examining the work, payment was made by them to the assessee-company. Hence, after the major facts being on record,....
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.... concurrent factual findings, which have not been shown to be perverse and, therefore, dismissed the appeal stating that no substantial question of law arises from the impugned order of the Income-tax Appellate Tribunal." 12. The learned counsel submitted that the assessee provided the labour contract to Sintex Infra Projects Ltd. looking the nature of business of that organisation. M/s. Sintex Infra Projects had undertaken numerous of housing projects, ATM projects, drug house projects, barrack projects, health centre project and other. Since the projects awarded to the assessee were Government projects, the assessee after looking into the size and nature of business of the company gave labour contract for hard rock chiselling using rock hammers and chisels, stacking on road side for pipe line trenches, carting excess earth and other similar labour job to Sintex Infra Projects Ltd. M/s. Sintex Infra Projects Ltd. being a large concern having a turnover during the year under appeal of Rs. 284 crores and had disclosed a profit of Rs. 19.23 crores in its profit and loss account. A copy of the audited accounts as downloaded from the Registrar of Companies site of the said party is ....
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....e work order was awarded to Silicon Real Estate Pvt. Ltd. only as per suggestion of Mr, Anshu Balbir with understanding that respective companies will monitor the work. Question 21 : I am showing you statement recorded by the Deputy Commissioner of Income-tax, CC XXI of Shri Parnay Kumar Sinha, director of Silicon Real Estate Pvt. Ltd. on his office. Please go through it, Shri Sinha has admitted this company has not performed any work in reality and has provided only turn over/expenditure entries on commission basis. Please comment. Answer 21 : As I have explained earlier that the entire work sub-contracted to Silicon Real Estate Pvt. Ltd. was on back-to-back basis and payments were made as and when receive from the clients mentioned. We have neither executed nor monitored this work on our own. However, all our clients for whom we have entered into agreement for this work have issued completion certificate for all work sub-contracted to Silicon Real Estate Pvt. Ltd. Since the certificates were issued to us by the client who gave us contract therefore, there was no question to doubt the completion of work. Analysing the aforesaid statement so recorded, it was su....
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....oned that any service in relation to such contract was undertaken by Silicon Real Estate Pvt. Ltd. Further, the assessee was also neither informed by Sintex Infra Projects Ltd. that the contract was sub-contracted to Silicon Real Estate Pvt. Ltd. The learned Assessing Officer and the learned Commissioner of Income-tax (Appeals) both failed to establish the connection of the assessee with M/s. Silicon Real Estate Pvt. Ltd. In this regard, the statement of Sri Pranay Kumar Sinha, director of M/s. Silicon Real Estate Pvt Ltd, extracted by the learned Commissioner of Income-tax (Appeals) in his order which was also relied upon by the learned Assessing Officer is reproduced hereunder : "Question 8 In the course of search and seizure operation of M/s. Electrosteel Casting during the financial year 2008-09 and in course of search and seizure operation of Sadbhai group during the financial year 2010-11 it was come to light that your company is not in fact executed any work for which you have taken sub-contract for or commission for carrying out any assignments their behalf. M/s. Electrosteel have already admitted that they have appointed you to get accommodation entry for claiming....
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....cross-examine witnesses whose statements have been relied upon is contrary to the principles of natural justice. For that we rely on the decision of the hon'ble Supreme Court in the case of Andaman Timber Industries v. CCE [2016] 38 GSTR 117 (SC) ; [2015] 281 CTR 241 (SC) wherein it was held as follows (page 120 of 38 GSTR) : "According to us, not allowing the assessee to cross-examine the witnesses by the adjudicating authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of the principles of natural justice because of which the assessee was adversely affected. It is to be borne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses." We note that the assessee asked the Assessing Officer to provide the opportunity to cross-examine the parties whose statement was relied upon, however the same was not provided. Further, the assessee also pleaded before the learned Commissioner of Income-tax (Appeals) for cross-exam ination, however, the learned Commissioner of Income-tax (Appeals) ignored the....
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....Officer has failed to bring any cogent evidence on record to demonstrate that these documents/evidence are false. Therefore, addition made by the Assessing Officer needs to be deleted and accordingly we delete the addition of Rs. 5.42 crores. For the sake of academic discussion, we also note that the aforesaid two projects are infrastructure projects specified under section 80-IA of the Act and 100 per cent. profit from such infrastructure project is allowed as deduction under section 80-IA of the Act. Even if the disallowance of Rs. 5.42 crores is made, there would be no impact on the tax liability of the assessee, as disallowance of the expenditure of Rs. 5.42 crores will increase the profit under section 80-IA of the Act and such increased profit will be allowed as deduction under section 80-IA of the Act. 15. In the result, the appeal of the assessee is allowed. 16. Now, we shall take the Revenue's appeal in I. T. A. No. 1211/Kolkata/ 2018, for the assessment year 2011-12. Ground No. 1 raised by the Revenue relates to deletion of disallowance of Rs. 14,83,51,419 on account of provision for future loss being unascertained liability, which reads as follows: ....
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....,83,51,419 claimed by the assessee. After considering the submission, the learned Commissioner of Income-tax (Appeals) examined the facts of the assessee's case along with the related decision of the Income-tax Appellate Tribunal, Mumbai and the Income-tax Appellate Tribunal, Pune and reached to the following conclusion : (i) The contract should be fixed price contracts. (ii) The contractor is liable to claim foreseeable losses on the basis of Accounting Standard 7. (iii) Accounting Standard 7 is acceptable for contract accounting. (iv) The losses are not contingent or unascertained. The learned Commissioner of Income-tax (Appeals) also considered the tax audit report and audited annual accounts of the assessee and held that the learned Assessing Officer failed to point out any defect in the esti mate or application Accounting Standard 7. We note that during the year, the assessee claimed a sum of Rs. 14,83,51,419 by way of provision for losses expected to be incurred on contracts in accordance with Accounting Standard 7. The Assessing Officer disallowed the same observing that losses are in respect of some contract which was cancelled ....
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..... 10 The aforesaid sum of Rs. 10 also represents the difference between the contact value-budgeted cost (sum of costs incurred till date and expected expenditure in the future) which is allowable under para 35 of Accounting Standard 7. Para 35 of Accounting Standard 7, provides as follows : "35. When it is probable that total contract costs will exceed total contract revenue, the expected loss should be recognised as an expense immediately. 36. The amount of such a loss is determined irrespective of : (a) whether or not work has commenced on the contract ; (b) the stage of completion of contract activity ; or (c) the amount of profits expected to arise on other contracts which are not treated as a single construction contract in accordance with paragraph 8." Thus, as per Accounting Standard 7 which is mandatory in nature, the assessee is required to estimate its total contract costs, (i. e., sum of costs incurred and expected future costs) and recognise the expected losses, (i. e., difference between the contract revenue and total contract costs). We note that the co-ordinate Bench of the Income-tax Appellate Tribunal, Mumbai in....
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....as revised the contract value and contract cost, as per the management's best estimate and the expected loss has been duly provided for in the accounts. The company has also lodged counter claims on the client and it does not expect any further loss arising out of such termination.' Before me the authorised representative of the appellant has stated that the appellant enters into fixed price contracts and the estimated future losses are made in accordance with Accounting Standard (AS-7). It has been submitted that the total revenue of the appellant-com pany during the previous year was Rs. 1140.83 crores. The unbilled revenue of the fixed price contract, offered to taxation, as submitted by the authorised representative was Rs. 299.58 crores. Accordingly, it was argued that as the entire revenue of the fixed price contract had been offered to taxation the immediate and foreseeable losses as per Accounting Standard 7 was accordingly claimed as a deduction. The loss has been explained to be computed according to the guidelines as provided in para 35 of Accounting Standard 7. The future losses have been claimed on account of the fact that the revenue which ha....
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....or the estimated loss in the books of account. This issue about the claim of future loss on the basis of Accounting Standard 7 was also examined by various co-ordinate Benches of the Income-tax Appellate Tribunal and the claim of future losses on the basis of Accounting Standard 7 was considered as allowable deduction while computing profit of the year. (para 26) In the case of Jacobs Engg. India Pvt. Ltd. v. Asst. CIT (I. T. A. Nos. 7017 and 7018/Mum/2006 and 335 and 336/Mum/2007 dated May 26, 2009) the Mumbai Tribunal has held that the provision for fore seeable losses under Accounting Standard 7 is an allowable expendi ture. Mazagon Dock Ltd. v. Jt. CIT [2009] 29 SOT 356 (Mum). (para 27) Keeping the principle laid down on this issue in various co-ordi nate Bench decisions, it is held that the assessee's claim for provision for loss, which was made in accordance with the guidelines of Accounting Standard 7 and duly debited in the audited accounts of the company is an allowable expenditure. Therefore, the Dispute Resolution Panel was not correct in rejecting the same without assigning any reason. The Assessing Officer is directed to allow the claim of future loss in t....
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....eration was as to whether the anticipated loss on the valuation of fixed price contract in view of the mandatory requirements of Accounting Standard 7 was to be allowed in the year in which the contract had been entered into or it was to be spread over a period of contract, as was done by the asses see in earlier years. As far as the change in the method of valuation of work-in-progress was concerned, it could not be disputed that in view of the mandatory requirements of Accounting Standard 7, it was a bona fide change in the method of valuation of work-in-progress, particularly in view of the qualification made in this regard by stat utory auditors as well as by the Comptroller and Auditor General of India. Therefore, the observation of the Commissioner of Income-tax (Appeals) that the assessee had booked bogus loss was not correct. As far as the basis of estimation was concerned, the same was done on technical estimation basis and, therefore, merely because there were some variations in the figures furnished by the assessee at different stages, it could not be said that the estimated loss was not allowable. It was not disputed that the Department in earlier years had allowed the ....
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....sessee and held that 'yes' it is an allowable expenditure. The Tribunal while deciding this issue has also considered the decision of Mazagon Dock Ltd. v. Jt. CIT (supra). 19. Considering the facts of the case in the light of the Accounting Standards and the decisions of the Tribunal (supra), and as no distinguishing cases have been brought on records by the Revenue, reversing the findings of the learned Commissioner of Income-tax (Appeals), we direct the Assessing Officer to recompute the business profits by allowing the losses provided by the assessee in its books. The appeal filed by the assessee is allowed.' 12. To the similar effect is the decision of the Mumbai Bench of the Tribunal in the case of Mazagon Dock Ltd. (supra) which has also been relied upon by the Tribunal in the case of ITD Cementation India Ltd. (supra). Therefore, in view of the aforesaid precedents in principle, it has to be inferred that where an assessee is executing an infrastructure development fixed price contract, the foreseeable losses of future years can be recognised following the rationale of Account ing Standard 7 issued by the Institute of Chartered Accountants of In....
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....low the other Accounting Standards issued by the Institute of Chartered Accountants of India. The Accounting Standards issued by the Institute of Chartered Accountants of India cannot be brushed aside lightly. On the contrary, if an assessee is following the Accounting Standards issued by the Institute of Chartered Accountants of India, it would give more credibility and authenticity to its account. (para 14) * It is not in dispute that the assessee is executing fixed price contract, which means that the contractor has agreed to a fixed contract price or rate in some cases subject to cost escalation prices. As per Accounting Standard 7 the assessee is entitled to make provision for foreseeable losses. (para 15) * A perusal of the accounting statement of the assessee for the year under consideration shows that in the financial statement, the auditors have provided as follows : Contract prices are either fixed or subject to price escalation clauses. Revenue from contracts is recognised on the basis of the percentage comple tion method, and the level of completion depends on the nature and type of each contract. In addition, if it is expected that the contract will m....
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....view of the facts discussed above, it is observed that the company has followed Accounting Standard 7 and has debited the future losses. Respectfully following the various decisions as discussed above, I am of the considered opinion that deduction for future loss of Rs. 14,83,51,419 is allowable. Therefore, these grounds of appeal of the appellant are hereby allowed." We note that in fixed price contracts, the assessee having credited all its revenue, as per the contract, has to provide for all the foreseeable expenses which it is bound to incur as per the contract. Accounting Stand ard AS 7 provides for such an eventuality. Having gone through the order of the learned Commissioner of Income-tax (Appeals), we note that there is no infirmity in the order of the learned Commissioner of Income-tax (Appeals). That being so, we decline to interfere in the order passed by the learned Commissioner of Income-tax (Appeals), his order on this issue is hereby accepted and the grounds of appeal raised by the Revenue is dismissed. 21. Ground No. 2 raised by the Revenue reads as follows : "2. That on the facts and in the circumstances of the case and in law, the learned Commission....
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....the Assessing Officer was in order.' The Madras High Court judgment in the case of Redington (India) Ltd. v. Addl. CIT [2017] 392 ITR 633 (Mad) (copy enclosed at pages 72-75 of the paper book), wherein it was held that (page 639) : '15. The exemption extended to dividend income would relate only to the previous year when the income was earned and none other and consequently the expenditure incurred in connection there with should also be dealt with in the same previous year. Thus, by application of the matching concept, in a year where there is no exempt income, there cannot be a disallowance of expenditure in relation to such assumed income. Madras Industrial Investment Corporation Ltd. v. CIT [1997] 225 ITR 802 (SC) ; 91 Taxman 340 (SC). The language of section 14A(1) should be read in that context and such that it advances the scheme of the Act rather than distort it. 16. In conclusion, we are of the view that the provisions of section 14A read with rule 8D of the Rules cannot be made applicable in a vacuum, i. e., in the absence of exempt income. The questions of law are answered in favour of the assessee and against the Department and the app....
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....tion by the assessee in terms of private sector participation in the development of infrastructure facilities which is a significant aspect for identification of an assessee as developer. Hence such business does not qualify for deduction under section 80-IA of the Act. In view of the above, the entire claim of deduction of the assessee under Chapter VI-A amounting to Rs. 59,83,57,154 was disallowed. 26. Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the learned Commissioner of Income-tax (Appeals) who has deleted the addition made by the Assessing Officer observing the following : "During the previous year the assessee has undertaken the various projects as observed by the Assessing Officer as follows : (i) Jawai Pali Projects (ii) Bisalpur Jaipur Projects-PK-4 (iii) R. K. Puram Project (iv) T. K. Hally Project, W-5 (v) Taraka Lift Irrigation Scheme (vi) Rajarhat Project (vii) Project with UP Jal Nigam (viii) T. K. Hally Project(W3). (ix) Urbani Lift Irrigation Scheme (x) Pokhana Project (xi) Mira Bhayandar Project ....
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....cases in the assessment years 2006-07 to 2010-11. The hon'ble Income-tax Appellate Tribunal in CIT (Dy.) v. SPML Infra Ltd. (I. T. A. Nos. 1291-1292/Kolkata/2013) for the assessment years 2006-07 and 2009-10, has allowed the claim of the appellant for deduction under section 80-IA(4). The salient points with regard to the allowability of deduction under section 80-IA which emerges from the above order is as follows : "(i) In a case where a person makes the investment development work, i. e., carries out the civil construction work he will be eligible for tax benefit under section 80-IA of the Act. (ii) 'Works contract' used in the Explanation to section 80-IA(13) means a contract of developing infrastructure by merely employing labour and making no investments. (iii) However, if under a contract, the contractor employs his capital and enterprise in addition to labour, then the said contract does not constitute a works contract under the Explanation to section 80-IA(13) and the contractor shall be eligible for deduction under section 80-IA. (iv) Even if an assessee is merely developing the infrastructural facility (without ope....
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....ction under section 80-IA. Accordingly, the claim for deduction under section 80-IA(4) is hereby allowed." 27. From the above, it is clear that the assessee was not a works contractor simpliciter and was a developer and hence Explanation to section 80IA(13) does not apply to the assessee. Further, in addition to developing the infrastructure facility, the assessee was even operating and maintaining the same. Thus, clearly the assessee is eligible for deduction under section 80-IA. As the issue is squarely covered in favour of the assessee by the decision of the co-ordinate Bench, in the assessee's own case in CIT (Dy.) v. SPML Infra Ltd. (I. T. A. Nos. 1291-1292/Kolkata/2013) for the assessment years 2006-07 and 2009-10 and there is no change in facts and law and the Revenue is unable to produce any material to controvert the aforesaid findings of the Division Bench (supra). The learned Commissioner of Income-tax (Appeals) relied on the judgment of the co-ordinate Bench in the assessee's own case (supra). We find no reason to interfere in the said order of the Division Bench, therefore, respectfully following the judgment of the co-ordinate Bench in the assessee's....
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....not be disallowed under section 43B or under section 36(1)(va) of the Act. Respectfully following the judgment of the hon'ble Supreme Court, we dismiss the ground raised by the Revenue. 33. Ground No. 5 raised by the Revenue reads as follows : "5. Whether on the facts and in the circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) erred in law as well as in facts that the disallowance under section 14A cannot be made for the purpose of computing book profit under section 115JB of the Income-tax Act, l961." 34. At the outset itself, the learned counsel for the assessee submitted that the issue involved in ground No. 5 raised by the Revenue is no longer res integra. We note that the learned Assessing Officer while computing the book profit under section 115JB had added the amount disallowed under section 14A of the Income-tax Act, 1961 which is contrary to the binding principle of law. In this regard it is submitted that clause (f) of Explanation 1 to section 115JB provides for adjustment towards : "the amount or amounts of expenditure relatable to any income to which section 10 (other than the provisions contained in clause (38) t....